Volatility can be a good thing when it creates buying opportunities, but it is also one of the biggest challenges for investors managing their own investments.
In times of uncertainty, investors can benefit from low beta stocks with defensive qualities. Beta is a measure of a stock's volatility compared to the rest of the market. A stock that has a beta of more than 1 means it swings more than the rest of the market while a beta of less than 1 shows that the stock is less volatile compared to the rest of the market. High beta stocks are generally viewed as higher risk-higher return investments compared to low beta stocks and this is why they can be more volatile during times of uncertainty.
With that in mind, it is important for SMSF investors to have a number of low beta stocks that could help to protect their portfolio when the market is faced with uncertainty.
Here are three stocks SMSF investors could consider adding to their portfolios:
1. Telstra Corporation Ltd (ASX: TLS) – Telstra is the classic defensive stock that has proven to be a great investment over a long period of time. It has a beta of just 0.5 and provides investors with an attractive income stream as well.
Telstra owns the largest and best quality mobile network in Australia and is set to reap the benefits from the surge in popularity of wireless and cloud based services over the next few years. Telstra creates excellent cash flows and this allows the company to provide investors with a solid dividend that is set to increase over the medium term.
Investors will receive a fully franked dividend yield of close to 5% over the next year and can be comfortable knowing that Telstra will be profitable for many years to come.
2. Coca-Cola Amatil Limited (ASX: CCL) – Coca-Cola Amatil has struggled to produce any meaningful returns for shareholders over the past five years but the company is expected to return to growth in FY16 so now might be a good time to consider adding this stock to your portfolio.
The company has been working hard to re-structure its product portfolio to become more relevant to today's more health conscious consumers and this should help to generate positive returns moving forward. Coca-Cola Amatil has also been investing heavily in some of the fastest growing Asian economies where the company should benefit from improving wealth and higher consumption in these countries.
While the stock is not overly cheap at the moment, investors can expect to receive a partially franked dividend yield of 4.8% and exposure to a defensive company with a beta of just 0.54.
3. Healthscope Ltd (ASX: HSO) – Although healthscope has only been re-listed for just over a year, it is already proving to be a low volatility stock with a beta of just 0.54.
The company is Australia's second largest private hospital operator with 44 hospitals and it also owns 43 international pathology labs. In addition to this, Healthscope owns and operates 58 medical centres and recently sold its Australian pathology unit for $105 million. The company is well placed to benefit from the growing and ageing population and the increasing utilisation of private healthcare services over public services. Importantly for investors, Healthscope has a pipeline of new hospital developments and expansions that should drive earnings over the longer term.
The healthcare sector has been one of the most popular defensive sectors over the past decade and as a result good quality businesses at cheap prices are hard to find. Healthscope is no exception to this and is currently trading at an FY15 EBIT multiple of nearly 17x. With that in mind, Healthscope could be an excellent long term investment, and SMSF investors would be wise to keep a close eye on this defensive stock.
Sure, low beta stocks might help protect your portfolio during times of volatility, but The Motley Fool has found two stocks that are set to perform no matter what the situation!
